MODIFICATION AGREEMENT
This Modification Agreement ("Agreement") is made and entered into
effective as of March 25, 1997, by and among LifeRate Systems, Inc., a Minnesota
corporation ("LifeRate"), Xxxxxxx Xxxxxxx, M.D., a resident of Portland, Oregon
("Furnary"), and APF, LLC an Oregon limited liability company ("APF").
RECITALS
A. LifeRate, Furnary and APF entered into the "CORIS" Computer Software
Purchase Agreement, dated July 2, 1995 (the "Prior Agreement").
B. The parties desire to amend the Prior Agreement as set forth herein and
to provide for the continuing services of Furnary to LifeRate.
ACCORDINGLY, the parties hereby agree as follows:
1. Article I. Article I is hereby amended as follows:
(a) Section 1.3 is amended in its entirety to read as follows:
1.3 "Gross Xxxxxxxx" means the gross revenues of LifeRate, its
licensees or any successor or assign related to the Products. Gross
Xxxxxxxx shall include, without limitation, all revenue derived from
the Products or any services related to the Products, including all
revenue derived from the licensing, leasing, renting, or sale of the
Products or the provision of installation, consulting, maintenance,
support, customization or development services related to the Products.
In the case of fees for development services which exceed $500,000 for
a particular product or group of related products, the parties agree to
discuss the appropriateness of whether the royalties payable under
Section 6.1 hereof should apply to less than all of such development
fees. As of the date of the Modification Agreement, Gross Xxxxxxxx to
date constitutes the entire gross revenues of the Company (defined as
"Net Revenues" in the Company's Annual Report on Form 10-KSB). In the
event LifeRate chooses to sublicense the Products or to distribute the
Products through independent distributors rather than directly, Gross
Xxxxxxxx will be the fees paid by the sublicensee or distributor to the
Company, provided that, for any transactions over a 12-month period
where the aggregate price to be paid is in excess of $500,000 (a
"Material Transaction"), the price paid by such sublicensees or
distributors represents no more than a 40 percent discount from the
Company's published or standard list price. In the event that with
respect to any Material Transaction, the actual discount granted is
greater than 40 percent, Gross Xxxxxxxx shall be calculated as though
the discount were 40 percent.
(b) A new Section 1.4 is added as follows:
1.4 "LifeRate System" shall mean the LifeRate system, including all
current components of the LifeRate system (identified on Exhibit A
hereto), all extensions of the current system (or the use of specific
methodologies embodied in the current system) into other medical
practice areas which extensions or methodologies are developed during
the term of this Agreement and all upgrades and modifications thereto.
2. Article III of Prior Agreement. Article III of the Prior Agreement is hereby
deleted in its entirety, and none of the parties shall have any further
obligations thereunder.
3. Article IV of Prior Agreement. Since the Effective Date, LifeRate
acknowledges that Furnary has functioned as a primary system architect and has
directed the clinical design of the LifeRate system, including co-design of the
database structure, co-invention of the inventions claimed in the patent
application entitled "System for Multistate Display Representation of
Conditions" and in the patent application currently being prepared concerning
"flexidate technology," and other data entry software tools incorporated in the
Products. Accordingly, Article IV of the Prior Agreement is hereby amended by
adding Section 4.3 at the end thereof:
4.3 Other Intellectual Property Rights. Furnary and APF acknowledge and
agree, that except as expressly set forth in this Agreement, neither
Furnary nor APF has any right, title or interest in any intellectual
property rights related to the Products or the LifeRate System,
including, but not limited to, any inventions, copyrights, trade
secrets, trademarks or confidential information embodied in source code
or object code, regardless of whether or not Furnary or APF or any of
its employees or agents, conceived, developed or reduced to practice
any such intellectual property rights ("Intellectual Property Rights").
Furnary and APF hereby assign all of their right, title and interest in
and to any Intellectual Property Rights to LifeRate. To the extent that
any Intellectual Property Rights qualify as "work made for hire" as
defined in 17 U.S.C. Section 101 (1976), as amended, such any
Intellectual Property Rights shall constitute "work made for hire" and,
as such, shall be the exclusive property of LifeRate.
4. Article VI of Prior Agreement. Article VI of the Prior Agreement is hereby
amended in its entirety as follows:
6.1 Royalties.
(a) Royalty Payments to APF. In consideration of the sale of CORIS to
LifeRate, LifeRate shall pay to APF, its successors or assigns, a
royalty equal to: (i) Seven and Five/Tenths Percent (7.5%) of Gross
Xxxxxxxx from the date of the first licensing or sale of any of the
Products (which the parties acknowledge to be the licensing of the
Products to Atlanta Cardiology Group in January 1995) through March 31,
1997, after which date no royalties shall become owing to APF under
this Prior Agreement or under this Modification Agreement until the
following clauses become applicable; (ii) Three Percent (3.0%) of Gross
Xxxxxxxx received after the earlier of (a) January 1, 1999 or (b) the
date LifeRate achieves Cumulative Revenues (as defined below) of Twenty
Million Dollars ($20,000,000), and such royalty rate shall continue
until LifeRate achieves Cumulative Revenues of One Hundred Million
Dollars ($100,000,000); and (iii) Three and Six/Tenths Percent (3.6%)
of Gross Xxxxxxxx in excess of One Hundred Million Dollars
($100,000,000).
(b) LifeRate shall pay the royalties due to APF for the preceding
calendar quarter, within thirty (30) days after the last day of each
calendar quarter.
(c) "Cumulative Revenues" means the gross revenues of LifeRate
calculated on a cumulative basis since its inception as a company, as
reported on LifeRate's publicly available financial statements
(identified therein as "net revenues"). For the year ended December 31,
1996, the Company's gross revenues, as reported in the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1996, were
$615,585, Cumulative Revenues through December 31, 1996 were
$1,190,300.
(d) Foreign Currencies. The royalty on sales in currencies other than
U.S. Dollars shall be calculated using the appropriate foreign exchange
rate for such currency quoted by the Bank of America (San Francisco)
foreign exchange desk, on the close of business on the last banking day
of each calendar quarter. Royalty payments to APF shall be in U.S.
Dollars. All non-U.S. taxes related to royalty payments shall be paid
by LifeRate and are not deductible from the payments due APF.
(e) Revenue in Kind. Gross Xxxxxxxx include consideration or value of
any kind whatsoever. If revenue is paid in a form other than cash, the
non-cash consideration shall be accounted for at fair value.
6.2 Milestone Royalty Payments. In consideration of the sale of CORIS
to LifeRate, LifeRate shall pay APF milestone royalties as follows: (i)
One Hundred Thousand Dollars ($100,000) within five (5) business days
of the completion by LifeRate of its next round of financing involving
the sale of its equity securities raising gross proceeds to LifeRate of
at least Five Million Dollars ($5,000,000), provided that if LifeRate
does not successfully complete such financing by June 30, 1997, the
parties shall mutually agree upon a method to provide to APF the net
present value of One Hundred Thousand Dollars ($100,000); (ii) One
Hundred Fifty Thousand Dollars ($150,000) within forty-five (45) days
of the end of the calendar quarter in which LifeRate first achieves
cumulative Gross Xxxxxxxx of more than Twenty Million Dollars
($20,000,000); and (ii) Two Hundred Thousand Dollars ($200,000) within
forty-five (45) days of the end of the calendar quarter in which
LifeRate first achieves cumulative Gross Xxxxxxxx of more than Fifty
Million Dollars ($50,000,000). If LifeRate does not achieve the
cumulative Gross Xxxxxxxx as set forth in clauses (ii) and (iii) of the
foregoing sentence, LifeRate shall have no obligation to make such
milestone royalty payments.
6.3 Records. LifeRate shall maintain accurate records of all xxxxxxxx
and sales related to the Products. LifeRate shall submit to APF, within
45 days after the end of each calendar quarter, a clearly itemized
statement setting forth: the identity of each end-user customer from
which Gross Xxxxxxxx were received during each quarter, the amount of
Gross Xxxxxxxx received from such customer during such quarter, and the
royalty due on the aggregate gross xxxxxxxx for such quarter, and the
calculations upon which such royalty was based. A statement setting
forth such information for such quarter through December 31, 1996 is
attached as Schedule 2. LifeRate shall permit APF and its agents, upon
reasonable advance notice, to inspect, audit and analyze all of
LifeRate's records related to the Products or to Gross Xxxxxxxx.
6.4 Duration of Royalty. The parties acknowledge and agree that APF
shall continue to receive royalty payments as set forth herein,
notwithstanding: (i) the Products become public information; (ii) any
of the Products are sold, assigned or otherwise transferred by LifeRate
to a third party; or (iii) the death of Furnary.
6.5 Right of First Refusal. Upon receipt by LifeRate of a bona fide
offer to purchase any of the CORIS(TM) and CORIS(TM) Related Items,
LifeRate shall provide written notice to APF of the receipt and terms
of such offer. For a period of thirty (30) days after receipt of such
notice, APF shall have the option to purchase the products identified
in the notice on the terms stated in the offer. Such option must be
exercised in writing. In the event of a timely exercise of APF's option
rights hereunder, the purchase of the Product(s) by APF shall be closed
within sixty (60) days after the date the option is exercised. If APF
fails to exercise its option as to any bona fide offer, LifeRate may
proceed to sell the Product(s) identified in the offer to the offeror
on the terms specified in the original offer. APF's failure to exercise
its option rights as to any bona fide offer will not effect its option
rights as to any Products not sold pursuant to the provisions of this
paragraph.
6.7 Prior Stock Option. On the Effective Date, LifeRate granted to APF
the non-qualified right and option to purchase (the "Option") up to
Twenty-Six Thousand (26,000) common shares of LifeRate, subject and
pursuant ot the terms and provisions of the Stock Option Agreement,
attached hereto as Exhibit B and incorporated in this Agreement by
reference. LifeRate agrees to amend the Option and the Stock Option
Agreement to provide that the exercise price of such options shall be
$2 5/8 per share. Except as set forth herein, such prior option shall
remain in effect in accordance with its terms.
6.8 Buy-Out of Royalties. LifeRate may notify APF at any time during
the term of the Consulting Agreement of LifeRate's interest in
converting a portion or all royalties and milestone payments payable
under this Agreement to a fully paid-up status by making a lump-sum
payment to APF. Within a reasonable period of time thereafter, LifeRate
and APF agree to enter into discussions concerning the amount of such
lump-sum payment and the nature of the consideration such payment might
take, including LifeRate stock or rights to acquire stock. If LifeRate
and APF are able to reach a mutual agreement on all aspects of such
lump-sum payment, then all royalties and other payments payable to APF
hereunder shall terminate on the payment of such lump-sum. LifeRate
agrees to pay all out-of-pocket expenses, including all professional
fees, of APF incurred in connection with any such discussions,
regardless of whether the parties reach mutual agreement concerning a
buy-out. Nothing in this Section 6.8 shall be construed to imply that
either party shall have a duty or obligation to modify the terms of
this Agreement, and each party expressly reserves the sole discretion
to determine whether any such modification is acceptable to such party
and the failure of the parties to reach mutual agreement shall be not
deemed a breach of this Agreement. Until any such mutual agreement is
reached, if ever, this Agreement shall remain in full force and effect.
5. Section 10.1 of Prior Agreement. Section 10.1 of the Prior Agreement is
hereby amended by adding the following at the end of the section:
Notwithstanding the foregoing, the parties acknowledge that it will be
impossible to measure the damages that would be suffered upon any
breach of Article 4 and Section 6.5 of this Agreement and that in the
event of any such failure, there shall not exist an adequate remedy at
law. Either party shall, therefore, be entitled to obtain specific
performance of the other party's obligations under Article 4 and
Section 6.5 and to obtain immediate injunctive relief. Such other party
shall not urge, as a defense to any proceeding for such specific
performance or injunctive relief, that there exists an adequate remedy
at law.
6. Definitions. All terms used in this Agreement in initial letters which are
not otherwise defined herein shall have the meanings set forth in the Prior
Agreement.
7. Effective Date. The amendments to the Prior Agreement as set forth herein
shall be effective as of the effective date of this Agreement.
8. No Other Amendment. Except as specifically set forth herein, the Prior
Agreement shall remain in full force and effect in accordance with its terms.
9. Counterparts. This Agreement may be executed in one or more counterparts each
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
10. Governing Law. This Agreement shall be governed by the laws of the state of
Minnesota.
11. Entire Agreement. This Agreement, the Consulting Agreement and the Warrant
and the Prior Agreement, as amended hereby, including the exhibits thereto
constitute the entire agreement among the parties with respect to the matters
contemplated by such agreements, and supersede any and all other written or oral
promises or representations regarding such subject matter.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
LIFERATE SYSTEMS, INC.
By___________________________________
Its__________________________________
_____________________________________
XXXXXXX XXXXXXX, M.D.
APF, LLC
By___________________________________
Its__________________________________
